All Time High For The Dow!

Yet another all-time high was set for the Dow Jones Industrial Average! (see chart here and below). Stocks continuing their winning ways especially for the Dow Jones Industrial Average which closed out the month of August at 41,563 setting a fresh record high. The S&P 500 (see chart here) is flirting with a new high as well, however, both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are playing catch up.

For some the stock market performance here in 2024 is a head scratcher. Pundits are asking why is the stock market continuing to outperform despite the headwinds our country faces? The immediate knee jerk response to that question is seemingly easy to answer; inflation is cooling, and the Federal Reserve is signaling rate cuts. I am not so sure it is that easy of an answer. Sure, inflation is indeed adjusting down and the Fed seems to be ready to cut rates, however, I would also have to add in that the calendar is also playing a role. Historically, election years tend to positive years for stocks, this along with the Fed seemingly ready to cut rates is a set-up for market outperformance, hence all-time highs have been plentiful throughout this calendar year. That being said, I would not be surprised to see volatility pick right back up as we head into September. Historically, September is a tough month for stocks, (click here). Pundits call it the September effect which basically is an historical average over the past 100 years on how the market performs in the month of September and that metric demonstrates a consistent downward trend in this given month. Now past performance does not guarantee future results, but this is something I will pay attention to.

Whatever the case is, we are now heading straight into year end with a Presidential Election to boot. I do expect a lot of action and volatility straight ahead. Good luck to all 🙂

~George

 

The Technicals Are In Play…

As the markets try to find their footing, the technicals are surely in play. After a record-breaking performance over the past few months, the major averages are flirting with breaking down. The Dow Jones Industrial Average (see chart here) recently broke down below its 20 and 100 day moving average, as did the small-cap Russell 2000 (see chart here). Both the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have broken down through their 20 day moving averages, however, these indices are finding support at their 100-day M/A.

The recent market action to me is no surprise. As I alluded to in my previous blogs, month over month stocks and the major averages have been setting all-time highs. At some point in time a pause and reversal in stocks is to be expected. That time appears to be here and now. Of course, there are other factors weighing in on the markets recent pullback with the spotlight coming back on to the inflationary backdrop our economy has faced. Inflation has dropped dramatically over the past year, however, recently there has been an uptick in key sectors, click here for a recent report on the consumer price index. Now pundits are tying the most recent consumer price index into a narrative that the Federal Reserve may not be cutting interest rates after all. Some economists are even suggesting the Fed may even hike rates should inflation continue to uptick.

I come from the camp that a bump in the road with a slight uptick on inflation is nothing to panic over. Now if over the next couple of months the CPI continues to rise, then this would be a different discussion. In the near term if the major averages are able to hold here at the key support zones, then the recent pullback should find some footing. If the selling pressure continues then the 200-day moving average could be the next stop.

Good luck to all 🙂

~George

Strongest Performance In 5 Years…

Stocks took off in the first quarter with the S&P 500 (see chart here) delivering its strongest Q1 performance in 5 years gaining over 10%. The Dow Jones Industrial Average (see chart here) also closed Q1 with a gain of 5.6%, the Nasdaq Composite (see chart here) finished the quarter up over 9% and the small-cap Russell 2000 (see chart here) finished up around 5%. So, as I posted last month, stocks continue their record setting ways.

So why are the markets continuing to demonstrate strength despite interest rates remaining high relative to when this bull market started? I think part of the answer is right there. The Federal Reserve is continuing to indicate that three interest rate cuts remain in place for 2024 which is bullish for the markets.

Another first quarter driver of the markets can be attributed to the “Magnificent 7”. Nvidia (Symbol: NVDA), Meta Platforms (Symbol: Meta), Amazon (Symbol: AMZN), Microsoft (Symbol: MSFT), Alphabet (Symbol: GOOGL), Apple (AAPL) and Tesla (TSLA) are the Magnificent 7 and are responsible for 40% of the S&P 500’s (see chart here) gain in Q1. This dynamic too attributed to the momentum stocks witnessed in the first quarter although there are a couple of chinks appearing in the armor of the Magnificent 7 and that is the recent under performance of Apple and Tesla. Personally, I would like to see a broader rally here not just 7 stocks that are making up a big percentage of the overall gains.

That being said, and now that the first quarter of the year is in the books, earnings reporting season begins here in April. Earnings season should be the next catalyst as to where stocks and indexes go. As I just spoke to, I would like to see a broader based rally and Q1’s earnings results just might deliver results that could extend this year’s impressive rally. However, if corporate America issues flat to softer results, we could see a pause in this rally and even a potential pullback.

Good luck to all 🙂

~George

Cheers To The Markets!

Cheers to the markets and what a year for stocks! 2023 turned out to be a spectacular year for the stock market as not many expected the markets to rip-roar as it did last year. The Dow Jones Industrial Average (see chart here) finished the year up almost 14 percent. The S&P 500 (see chart here) closed the year up 24%. The Nasdaq Composite (see chart here) closed the year up a whopping 44 percent. A big part of the Nasdaq’s eye-popping performance was how the “Magnificent 7” performed. For those of you who do not know who the Magnificent 7 are, it is the big tech group made up of Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT), Google owner Alphabet (NasdaqGS: GOOGL), Amazon (NasdaqGS: AMZN), Nvidia (NasdaqGS: NVDA) and Meta Platforms (NasdaqGS: META) and Tesla (NasdaqGS: TSLA). Finally, the small-cap Russell 2000 (see chart here) closed the year up 15%.

Many stock market experts did not expect such a stellar year for stocks. Let’s dig in and see what happened. For starters, inflation itself retreated faster than anyone expected which now has the Federal Reserve speaking to cutting rates in 2024. This metric alone is very bullish for stocks. Then factor in how strong the economy has been it’s no wonder we are at or near all-time highs. What’s equally impressive is how the markets have shrugged off the geopolitical backdrop. From two wars that seemingly have no end is sight, to the U.S. political divide, to China’s stagnant economy, nothing seems to be bothering the markets, at least not yet.

As we now look forward to 2024, I think we are in for a doozy of a year, at least from a volatility standpoint. We are also in an election year, and this alone should create higher volatility. I would also expect that after such a strong performance in 2023 that a pause and/or even a correction of some sort could potentially be in the cards for the markets in general.

Wishing everyone the healthiest, happiest, and most prosperous new year 🙂

~George

The Bounce Was Indeed Real…

In my November 1st blog, I asked the question was the bounce real? Fast forward to today and indeed the bounce the markets experienced in the early fall not only held but took off to and are nearing all-time highs. The Dow Jones Industrials (see chart here) closed yesterday at 36,245, the S&P 500 (see chart here) closed at 4,594 the Nasdaq Composite (see chart here) closed at 14,305 and the small-cap Russell 2000 (see chart here) finished the month out at 1,862.

It’s truly incredible to see how resilient the markets are considering the current interest rate environment and how inflation continues to impact the consumer. Rising interest rates tend to impact the stock market negatively and inflation impacts the consumer negatively too. So why are the markets approaching all-time highs? Could it be that the economy grew at a faster rate in the 3rd quarter than previously reported? Or could it be that the Federal Reserve may be ready to slow down or pause its current interest rate policy? I am not sure on either front, but what is apparent is that the markets are brushing off the current backdrop of Fed’s economic policy and the ongoing inflationary pressures. One thing I have learned over the years is the trend is your friend and these markets continue to trend up.

That being said, let’s look at a key technical indicator that many traders and investors rely on to see if we are approaching or at overbought conditions. According to the Relative Strength Index aka the RSI both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) have crossed and are trading above the 70 value level. The 70-value level according to the relative strength index is the beginning of overbought conditions. The Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) are fast approaching the 70-value level. I do want to point out that stocks and indexes can remain overbought for extended periods of time, but I would not be surprised if we see somewhat of a pause or possibly a reversal here in the month of December to this very impressive rally we are currently in.

It’s always a good idea to consult a certified financial advisor before making any adjustments to your portfolio. Good luck to all 🙂

~George

Are The Major Averages Breaking Out?

After breaching their respective 200-day support lines in March, the major averages appear to be breaking out of their months long trading range. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are all hitting monthly highs. Also, each of these indices appear to have strong momentum heading into July.

So why are the rally caps on? I think one of the drivers to this latest rally is how economy is faring. From the most recent GDP (gross domestic product report ) coming out stronger than expected to how inflation appears to be abating. Most every pundit expects our country to head into a recession, however, economic reports such as cited above are currently demonstrating a different backdrop. Market expectations have kept stocks in a trading range for the past several months until now.

The question now becomes is this a true “breakout” or is it a fake out? One catalyst that could answer this question is the upcoming Q2 earnings reporting season. Now that the second quarter of the year are in the books, corporate America will begin to report their Q2 earnings results here in July. This to me could prove whether or not this rally has more room to run.

When I look at the technical shape of the key indexes we are not yet in overbought territory according to the relative strength index aka the RSI. The only index that is near the 70-value level of the RSI is the S&P 500. According to the principles of the RSI, any index, stock, commodity etc. that trades above the 70 value of the RSI is considered overbought and we are not there yet. However, if this current rally continues then we could see the aforementioned indexes go into overbought territory. If this is the case, remember stocks and indexes can remain overbought for an extended period before reversion to the mean occurs.

Wishing everyone a safe and great 4th of July holiday weekend.

~George

 

Who’s Ready For The New Year?

After one of the weakest market performances since 2008, who is ready for the new year? I know I am!

Let’s take a look at how the major averages closed the year out. The Dow Jones Industrial Average (see chart here) finished lower by 8.78%, the S&P 500 (see chart here) shed almost 20%, the Nasdaq Composite (see chart here) fell a whopping 33% and the Russell 2000 (see chart here) closed the year down over 21%. Despite the bear market we now find ourselves in let’s not forget of how we got here. For the past 10 plus years and especially the past 3 years, central banks from around the world flooded the system with enormous liquidity. This liquidity came in many forms and with essentially charging little to no interest. The Federal Reserve Banks from around the globe started these programs when the 2008 financial crisis hit and for the better part of 15 years had not let up. What changed their position is how inflation took off this year to rates not seen in over 40 years.

Fast forward to today and we now have watched the Federal Reserve raise interest rates multiple times over the past several months and along with that taking the stock market with it. That said, I don’t blame the Fed for raising rates, in fact some pundits might argue as to why it took so long. Oh yea, a once in a century global pandemic shocked the world and the economy. So, what should have been a policy shift years ago became extended stimulus parade of liquidity into the system. Which by the way was very needed. Ok, so let’s not panic as to what occurred in the markets last year, from my vantage point this appears to be simply a function of interest rates and markets beginning to normalize.

Wishing everyone the healthiest, happiest, and most prosperous New Year 🙂

Cheers,

~George

 

The Fed Versus Inflation…

The market environment we find ourselves in is a clear dynamic of the Federal Reserve taking on inflation. The question now is will the Federal Reserve overreach with its interest rate war on inflation? One thing I have learned as it pertains to the markets is not to go against the power of the Fed and to trust they will ultimately steer the ship right.

That being said, what a month to forget for stocks! In the month of September alone the Dow Jones Industrial Average (see chart here) lost almost 9%, the S&P 500 (see chart here) fell over 9% while the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both gave up over 10% in September. I think we are all ready to turn the page on the markets summer performance. In fact, the year to date performance of the major averages are well into bear market territory.

In hindsight it was plain as day how unsustainable asset prices were across the board. From the stock market to the real estate market to the crazy land of cryptos. The excesses that the markets enjoyed while they were hot was a direct reflection of the Fed’s easy monetary policies. From essentially zero percent interest rates, to buying up treasuries and other asset classes to keep the economy strong during Covid, now the markets are paying that price. The head scratcher for me is how long it took the Fed to reverse its course but at least now we can begin to get to normalized rates which is a net positive for all markets.

As I look at the current technical shape of the aforementioned indexes, it’s not a pretty sight. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) are at or below their 52-week lows with no technical support yet in sight. The small-cap Russell 2000 (see chart here) is near its 52-week low but does have a bit of support right here. I think we could continue to see some more selling pressure before it’s all said and done but if you are a long-term holder of equities these type of market conditions can create some great opportunities too.

Good luck to all 🙂

~George

Technically Speaking…

The sell-off in the markets accelerated in the month of April and technically speaking it appears there could be more selling pressure ahead. On the year, the Dow Jones Industrial Average (see chart here) is down nearly 10 percent, the S&P 500 (see chart here) is off over 13%, the Nasdaq Composite (see chart here) is down over 21% and the small-cap Russell 2000 (see chart here ) year to date is down 17%.

I am not surprised of the market weakness due to all the factors at play right now. From the war in Ukraine, to the highest inflation rates we have seen in over 40 years, the ongoing Covid backdrop albeit this dynamic appears to be improving and finally, interest rates. The Federal Reserve now has woken up to the fact that this low interest rate environment that we have lived in for over a decade is over. Runaway inflation has now become a major concern for the Fed, and they are now being beyond vocal of their intentions. A 50-basis point increase appears to be the hike here in May and hikes throughout the year are in play. In my view, this is the top catalyst as to the sell-off but let’s keep things in perspective. Last year and previous years for that matter have been a boon for stocks and pretty much every other asset class out there. Record after record have been set for years on asset classes and this is simply not sustainable. A healthy correction is beyond needed and it seems like we are in that mode now!

Now let’s look at the technical shape of the aforementioned key indexes. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) all closed the month of April out below their key moving averages. The 20-day, 50-day, 100 and 200-day have all been breached while the Relative Strength Index aka the RSI have not yet breached an “oversold” condition. The RSI is a technical “momentum indicator” that has two values of importance. The 70-value level for potential “overbought” conditions and the 30-value level and below is a level that is considered “oversold. All the above indexes are currently hovering around the 35 level. Please remember “technical indicators” are there as a guide and a tool when assessing the technical backdrop of any given stock or index and is not 100 percent perfect.

Good luck to all 🙂

~George

 

 

 

The 200-Day Recaptured!

On the last trading day of January, both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) recaptured and closed above their 200-day moving averages. Why is this important to note? The 200-day moving average of any index or stock for historically acts as significant support in an uptrend and in a downtrend can act resistance. Since the first half of the new year both of these indexes have sold off to the extent of breaching their 200-day moving averages. This can also be said for the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here). What’s different right now amongst these key indexes is that the Nasdaq and Russell (see chart below) remain below their respective 200-day with some work to do. Let’s see if these two bellwethers can catch up to the Dow and S&P 500.

Headwinds do remain in the economy including inflation and now the backdrop of an upcoming rising interest rate environment. I think if the Federal Reserve manages their interest rate hikes in a methodical manner and communicates effectively to the street of their intentions, I don’t think the markets will be disrupted too much. Of course, geopolitical events such as the potential of Russia invading Ukraine and North Korea engaging once again in missile tests, these dynamics depending how they play out could impact the markets in the near term and the downtrend we witnessed last month could resume. Hopefully both geopolitical events turn out to be no more than a threat vs a reality.

Notwithstanding the above, I do see some hope with the pandemic numbers as of late. It does appear the spike in infections due to the omicron variant seem to have peaked which is great news for our country and the world for that matter. Hopefully soon there could be some semblance of normality which could be the catalyst for the recent downtrend in the markets to reverse its course as well.

Good luck to all 🙂

~George

The 200-Day Recaptured! - Paula Mahfouz